I am a researcher at Forbes Beijing bureau. I also write for the South China Morning Post, Nikkei Asian Review and Monitor Global Outlook.Previously, I blogged about environmental issues and Chinese politics for TIME Hong Kong. I am a graduate of the Medill School of Journalism, Northwestern University. Email: yuewang2012 [at] u.northwestern.edu. Twitter: @yueyueyuewang

Caixin: Haixin Steel Debt Bigger Than Reported

One of China’s largest private steel maker Shanxi Haixin Iron and Steel Group Co.,Ltd failed to repay bank loans that came due in early March. But the steel mill in China’s coal heartland probably owes banks almost seven times more than previously reported. Haixin Steel borrowed as much as 20 billion yuan($3.21 billion) from Minsheng Bank, according to Beijing-based investigative journal Caixin, citing anonymous sources.

Haixin’s looming crisis could be the start of a series of defaults in the steel sector, according to Caixin, which says steel companies in 2013 have borrowed 1.5 trillion yuan($241 billion) of loans that they may never pay back. The journal says big state-owned steel makers are hit particularly hard as Beijing seeks to rein in overcapacity, an industry problem that Li Xiangchun, a senior executive in the Chinese Iron and Steel Association, described as “beyond anyone’s imagination.”

The government is unlikely to bail out Haixin, which is also mired in triangular debts with coal suppliers and other local companies. China’s debt market is no longer seen as carrying an implicit state guarantee. Premier Li Keqiang warned that the country is likely to see a number of defaults as a consequence of the government’s increasing deregulation. At a March 13 press conference, he says future defaults on bonds and other financial products are “unavoidable.”

China saw its first bond default on March 7 when Chaori Solar, a small privately owned solar panelmaker, failed to pay the interest on 1 billion yuan worth of bonds it sold two years ago. The default has helped to push down the prices of industrial metals- copper and iron- as lenders who hold them as debt collateral took it as a sign of even tighter credit to come and rushed to sell off the commodities they hold. Jiang Xianglin, an economist at Fudan University, told me earlier that he saw no immediate catastrophe because the prices are unlikely to fall below the floor value of the collateral for the loans.

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